The bank failed to file timely suspicious activity reports related to nearly $1 billion worth of suspicious transactions that were conducted as part of a Ponzi scheme that ran from April 2008 through September 2009, according to statements issued Sept. 23 by the Office of the Comptroller of the Currency, the SEC and the Financial Crimes Enforcement Network. Regulators note that the Ponzi scheme, orchestrated by Florida attorney Scott Rothstein, induced victims to invest in purported settlements involving whistleblower and sexual harassment lawsuits. Rothstein earlier pleaded guilty and is serving a 50-year prison sentence.

TD Bank confirmed to Information Security Media Group that it has reached agreements with the OCC, the SEC and FinCEN. "These agreements resolve each agency's concerns regarding TD's customer relationship with Scott Rothstein, a Florida lawyer who perpetuated a multimillion-dollar fraud," the bank states. "TD Bank is pleased to resolve these regulatory concerns and to put the Rothstein matter behind us. TD works very closely with our regulators to ensure that it complies with all applicable laws and regulations."

SEC Allegations

In its statement, the SEC alleges that TD Bank and former regional vice president Frank Spinosa defrauded bank investors by producing a series of misleading documents and making false statements about accounts that Rothstein held at the bank.

"Spinosa played a key supporting role in Rothstein's Ponzi scheme by providing false comfort to investors that their money was safe and secure in the accounts at TD Bank," says Eric Bustillo, director of the SEC's Miami Regional Office. "He enabled Rothstein to con investors into believing he couldn't move their money, when he could, and that the bank was holding money that it wasn't."

The SEC says it has filed a complaint against Spinosa with the U.S. District Court for the Southern District of Florida.

The SEC's complaint against Spinosa charges him with multiple violations of the Securities Act of 1933 as well as the Securities Exchange Act of 1934. Spinosa also is charged with aiding and abetting Rothstein's various violations. The complaint seeks to have Spinosa pay financial penalties and return any profits from illegal acts.

The SEC alleges that in fall 2009, Spinosa made false statements to investors about the safety of their investments that enabled Rothstein to continue raising funds for his scheme. Spinosa also misrepresented to Rothstein's investors that so-called lock letters, aimed at restricting Rothstein's trust accounts, were common at TD Bank, the SEC states. In reality, lock letters had never previously been used by the bank, according to the SEC.

Thousands of transactions flowed through multiple law firm accounts Rothstein held with TD Bank, which included transactions related to Rothstein's Ponzi scheme, according to FinCEN.

"After the Bernie Madoff case, an argument was made that the SEC and other regulators had for so long failed to stop his activities because too many institutions and large investors were benefitting from them," Pascual says. "That had to have played some role in these fines being doled out. If other banks aren't taking this as a warning, they most certainly should be."

SARs Reporting

In 2011, TD Bank conducted a review of the Rothstein transactions, according to FinCEN. Based on that review, the bank filed five late suspicious activity reports that totaled approximately $900 million in aggregate suspicious transaction activity occurring between April 2008 and October 2009.

Regulators say the bank's failure to report that activity sooner reflects a lack of adequate training for anti-money laundering and the detection of suspicious activity.

"In the face of repeated alerts on Mr. Rothstein's accounts by the bank's anti-money laundering surveillance software over an 18-month period, the bank did not do enough to prevent the pain and financial suffering of innocent investors," says Jennifer Shasky Calvery, FinCEN's director. "Financial institutions must do a better job of protecting our financial system and citizens from such harm. It is not acceptable to have a poorly resourced and trained staff overseeing such a critical function."

FinCEN assessed a $37.5 million civil money penalty, the first such penalty assessed by its new enforcement division, which was established in June 2013. In addition, the Office of the Comptroller of the Currency also assessed a "concurrent" $37.5 million civil monetary penalty, which means TD Bank, as a result, only pays the amount once, not twice. However, the bank also faces a separate $15 million penalty from the SEC.

About the Author

Information Security Media Group (ISMG) is the world's largest media company devoted to information security and risk management. Each of its 28 media sites provides relevant education, research and news that is specifically tailored to key vertical sectors including banking, healthcare and the public sector; geographies from the North America to Southeast Asia; and topics such as data breach prevention, cyber risk assessment and fraud. Its yearly global Summit series connects senior security professionals with industry thought leaders to find actionable solutions for pressing cybersecurity challenges.

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